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The UK is “over the worst” of soaring food price inflation, according to the head of Ocado, but the online grocer warned that it would take time for prices to moderate.
Tim Steiner, the group’s chief executive and co-founder, said interest rate rises, greater mortgage costs and higher wages would continue to put pressure on prices. But he added: “We are definitely over the worst in my opinion.”
“I think we need to see interest rates ideally stabilise and come down before we can start to see that inflation will actually start to go back down. But I don’t see it going up from where it is now,” he said on Tuesday.
Steiner’s view that inflation has peaked follows similar remarks from other retail executives, raising hopes that the UK — which has experienced western Europe’s highest rate of food inflation — will finally see some relief.
Tesco chief executive Ken Murphy recently said he believed “we’re past the peak inflation” while J Sainsbury head Simon Roberts said earlier this month that “food inflation is starting to fall”.
UK grocery price inflation eased for a fourth consecutive month in July, according to data published by research company Kantar. The annual pace of grocery price inflation eased to 14.9 per cent in the four weeks to July 9, down from 16.5 per cent in the previous month.
Steiner’s remarks came as Ocado reported earnings before interest, taxes, depreciation and amortisation of £16.6mn for the six months to May 28. The group said its technology business had been profitable for the first time.
Revenue increased by 8.6 per cent to £1.37bn. Ocado shares rose 19 per cent on Tuesday.
Investors believe the technology business, “which brought in profitability, is going to be a slow burner, and is going to bring lots of growth over the long term”, said James Musker, an equity analyst at Davy. “The actual short-term profitability doesn’t really matter . . . These investors are convinced that Ocado can raise more cash because the product is so good.”
The company still recorded a pre-tax loss of £289.5mn, up 37 per cent year on year, but stuck to its annual guidance. Its shares have lost two-thirds of their value over the past two years, after hitting a record high during the pandemic-driven boom in online shopping.
Ocado runs an online supermarket in the UK in partnership with Marks and Spencer and also sells its technology to other retailers around the world to enable them to sell goods online.
Steiner pushed back at suggestions that retailers were raising prices beyond the heightened input costs of raw materials and wages.
“When you look at the overall margins to the sector, I think calling it profiteering is really not sensible,” he said, adding that the sector had to cope with substantially rising commodity prices as well as energy and labour costs.
“I think grocers have worked enormously hard as a sector to keep those price rises to a minimum for the UK consumer,” he said.
Ocado shares surged last month after rumours that it could be a bid target for Amazon.
“Speculation is speculation,” said Steiner. “Whenever any offer comes, as a management team and board I’ve got responsibilities to take this seriously.”
“But it’s not something I’m out pursuing,” he added.